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FMS Debt Collection and The Debt Collection Improvement Act of 1996

Updated March 5, 2001

In response to a steady increase in the amount of delinquent non-tax debt owed to the United States, and concern that appropriate actions were not being taken to collect this delinquent debt, Congress passed the Debt Collection Improvement Act of 1996 (DCIA). This law centralized the governmentwide collection of delinquent debt and gave Treasury significant new responsibilities in this area. The Financial Management Service (FMS) is responsible for Treasury's implementation of the debt collection provisions of the DCIA.

Background

Prior to passage of the DCIA, Treasury/FMS assisted the Office of Management and Budget (OMB) in providing federal agencies with guidance on collecting debts owed to the federal government. Additionally, FMS assisted agencies in collecting delinquent debts through the Internal Revenue Service (IRS) operated tax refund offset program, collecting debts through salary offset, and using a governmentwide contract available to federal agencies to refer delinquent debts to private collection agencies (PCAs). Due to FMS' accumulated knowledge of debt collection practices and procedures, and its position as the disbursing agency for more than 85 percent of federal payments, FMS was an appropriate agency to conduct centralized debt collection operations for the federal government.

The DCIA centralized the collection of delinquent non-tax debt at Treasury in two significant ways. One of the tools used by FMS to collect debts is its Treasury Offset Program (TOP), initially established under the DCIA. The TOP compares the names and taxpayer identifying numbers (TINs) of debtors with the names and TINs of recipients of federal payments. If there is a match, the federal payment is reduced, or "offset," to satisfy the overdue debt. The DCIA requires federal agencies to refer delinquent non-tax debts to FMS for purposes of collection by offset of non-tax payments. Non-tax payments include vendor, federal retirement, federal salary, and Social Security benefits. Currently, all OPM retirement, vendor, SSA benefit payments and some Federal salary payments are being offset.

TOP has been expanded to incorporate other offset processes, particularly: (1) the tax refund offset program, formerly operated by the Internal Revenue Service, was merged into TOP in January 1999; (2) levies served by the IRS for the collection of delinquent tax debt in accordance with the Taxpayer Relief Act of 1997; and (3) collection of state income tax debts by offset of federal income tax refunds as mandated by the 1998 Internal Revenue Service Restructuring and Reform Act. Different statutory requirements have made implementation of the entire TOP program very complex.

The other primary debt collection tool operated by FMS is "cross-servicing" which uses a variety of collection tools to encourage debtors to repay the federal government. Federal agencies are required to refer eligible delinquent (over 180 days) non-tax debts to Treasury for debt collection action, if they have not been successful at collecting those debts. The types of debts referred to FMS include unpaid loans, overpayments or duplicate payments made to federal salary or benefit payment recipients, misused grant funds, and fines, penalties or fees assessed by federal agencies. FMS sends demand letters to debtors on Treasury letterhead, and enters into repayment arrangements with debtors. FMS' cross-servicing program administers a contract with PCAs who provide delinquent debt collection services and FMS refers debts to these PCAs.